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Advocacy Alert- 07/22/2002

Daly City privacy ordinance update

An ordinance has been proposed in Daly City, Sen. Jackie Speier's home district, which would require those financial institutions within the city limits to secure express consent from consumers to share information - the so-called "opt-in" requirement. Originally heard in early July by the City Council, action on the proposed ordinance (Ordinance 1295) was "stayed" until August 12.

For those banks operating in Daly City, please contact the Daly City Council and let them know why you oppose the ordinance. We have attached a brief summary of the more troubling aspects of Ordinance 1295 and the bullet points below. This proposed ordinance is the latest strategic move from the proponents of SB 773, as they believe that attempting to enact municipal privacy ordinances will force industry to accept a poorly crafted and flawed statewide legislative alternative.

• Our current economy is borderless, with hundreds of financial institutions offering services in more than one state.

• Any attempt to regulate information exchange across municipal or state boundaries dramatically and unnecessarily increases the operational and regulatory burden on companies or institutions operating in multiple jurisdictions. The fact that San Francisco and San Mateo Counties are proposing different privacy ordinances from Daly City highlights this concern.

• Because of the borderless nature of our economy, the most effective way to deal with information sharing regulations is at the federal level.

• If anything, these proposed municipal ordinances prove the necessity for a federal, not statewide solution.

Recent press on potential privacy ballot initiative

Chris Larsen, the CEO of E-Loan, has announced that he will donate $1 million to any statewide ballot initiative that required opt-in for information sharing among financial institutions. An online mortgage broker, many speculate that E-Loan is doing this in the hopes of gaining market share. E-Loan's stock has fallen dramatically since its initial offering and is now trading at just above a dollar.

Accounting reform bill clears Senate but House is in negotiations

A comprehensive accounting reform bill was unanimously passed by the Senate this week. With total support from Senate Republicans, the Senate bill would create an independent accounting standards board to be appointed by the SEC, but with its own enforcement powers. Though many House Republicans urged the leadership to simply pass the Senate version and move on, the bill encountered opposition to the independent accounting standards board and other provisions. Despite claims to the contrary, it is likely that the final bill will closely resemble the Senate bill.

The Senate bill would:

• Essentially prohibit an auditing firm from performing other services for companies it audits;

• Require that auditors be hired by a committee of independent directors rather than the company itself;

• Provide very stiff criminal penalties for corporate fraud and requires CEOs to personally guarantee financial statements; and

• Imposes limitations on trading by corporate officers and requires much speedier disclosure of such insider transactions.

Banks should note that a provision was co-sponsored by Senator Diane Feinstein that prohibits companies from making personal loans t directors or "executive officers." Exceptions from home improvement, consumer credit or open-end credit to directors and executive offers would be allowed, provided the institutions offers those same services to the public.

The accounting measure now heads to conference, and there is some possibility that the House Financial Services and Senate Banking Committees could consider other provisions as well which have been passed by one body or the other. The bill is expected to be resolved in September.

Realtors seek moratorium on bank brokerage powers in Appropriations process

Realtors are seeking to accomplish on a Treasury Department funding bill what they have been unable to obtain through the committees of jurisdiction (Banking and Financial Services) - namely a one-year prohibition on the Treasury from moving forward with its proposal to authorize national banks to engage in real estate brokerage or management. The realtors were successful in adding a rider to the House version of the Treasury Appropriations bill that would forbid the Department from using any funds to promulgate the regulation during FY '03. The rider will not be challenged on the House floor which was to take up the bill this week. Meanwhile, the realtors were unsuccessful in their efforts to add the same rider to the Senate version of the legislation which cleared the Senate Appropriations Committee on July 16. Nevertheless, Senator Mary Landrieu (D-La.) has indicated her intention to offer the rider when the spending measure reaches the Senate floor. The leadership of both bodies and both committees of primary jurisdiction are opposed to the provision, but this is hardly a guarantee that the realtors will not succeed.

Fannie and Freddie agree to voluntary SEC registration

With substantial nudging from the Treasury, both Fannie Mae and Freddie Mac agreed this week to comply with SEC registration and reporting requirements with regard to their equity securities. Under the agreement, agency debt and MBS issuances would continue to be exempt. However, Treasury Undersecretary Peter Fisher, appearing before a key House subcommittee chaired by GSE critic, Richard Baker (R-La.), promised to study the issue of requiring more disclosures of debt and MBS issuances by the GSEs and report early next year.

Meanwhile, FHFB chairman Korsmo publicly embraced extending SEC disclosure requirements to the Home Loan Bank System, as proposed by Fisher. The problem is that the Home Loan Bank System is a cooperative, and, by statute virtually all its loans are made to shareholder banks and thrifts. The so-called '34 Act is written to tailor disclosure requirements to public companies. Nevertheless, as Fisher observed, there are over 7000 Home Loan Bank stockholders.